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Notes from Bharti Airtel’s earnings conference call for the quarter ended 30th September 2015:

1. Shipment of 4G handsets to India has increased dramatically: “The 4G ecosystem has suddenly switched over”, Airtel CEO Gopal Vittal said on the companys earnings conference call, adding it is evolving rapidly. “Two quarters ago, a million handsets were being shipped on 4G. Last quarter it was close to 5 (million), and we believe that this quarter it will be close to 10 million. The ecosystem is evolving rapidly.” Note that, yet again, Airtel declined to disclose the number of 4G subscribers it has.

2. Airtel identified location of 4G rollout on the basis of active 4G devices: “As far as 4G is concerned, we have tended to put in a lot more 4G investment where we believe the ecosystem is likely to develop, and that is a function of where the devices are and where the customers are likely to be. That’s how we’ve identified the 4G footprint.”

“As devices have started moving, quite rapidly, with pricing of devices falling to Rs 5000, and we believe that very quickly, there will be devices under Rs 5000 as well”…”Devices are coming in with (both) 2300 MHz and 1800 MHz chipsets.”

3. (Pre Reliance Jio Launch) Airtel wants to own the 4G positioning: “Our investment was a little ahead of the curve, and we did that deliberately, and we’ve leveraged that very powerfully in the marketplace to drive the perception of us owning the whole 4G position. Could we have moved it back by 12-15 months? In hindsight, maybe, given the state of the ecosystem.”

Airtel became the first operator to launch 4G pan-India, in 334 towns across India. “We have the widest spectrum footprint across the country. There is 4G at 3G prices, along with bundled offers across data and voice. In addition, we’re offering instant SIM swap, and home delivery of SIM, and a platform which allows customers to track their data usage. We’ve entered into handset alliances with Flipkart, Samsung, Apple and others.”

“One of the reasons why you’re seeing a very big acceleration in 4G is because of our rollout. We played a big hand in tipping the ecosystem over. We’re not subsidising devices. If the device companies are absorbing cost, they need to see… We felt the timing was right to accelerate the rollout.”

4. Airtel’s Flipkart handset deal for 4G for getting 4G penetration more quickly: “Every one of the 4G devices sold on Flipkart comes with an Airtel 4G SIM. The share of devices for Airtel is a little higher than our existing marketshare. One of the metrics that we’re chasing is to convert each of these devices (coming in) into a U-SIM, which is the SIM that you need when you use 4G. The conversion is quite high – in the 50’s (percentage). Once you have a U-SIM in, people are likely to use it (4G) because we don’t distinguish between 3G and 4G. When someone buys a data pack, they’re automatically connected to the 4G radio, if there’s 4G available in that city.”

“This is not a partnership with a device company (unlike Airtel’s historical partnership with Nokia), it’s a partnership with a retailer. Almost 70-80% of the devices that Flipkart is shipping out are 4G phones. Imagine if each of these comes equipped with an Airtel SIM, which is an actual SLR free SIM. Just by sending an SMS over the year, it is ready to go. If the customer calls a number, we will go and verify the customer. We’re the only operator able to do it, because we’re the only one with a 4G game in town.”

5. Airtel will focus on 4G infrastructure next year. This year is 3G: “A disproportionate amount of capex will be around expanding footprint on 3G and 4G”…”We would be happy to spend anywhere between $200-400 million dollars. Last year we rolled out 35,000 sites, largely 3G, and a little bit of 4G. If we’re able to pull it off, it will be double of what we’ve done so far, and we’ve never done that kind of a rollout. We’ve bought the spectrum. It’s meant to grow our data revenues. We believe the ecosystem is ready to pull in this investment. The question is that will we have the capability to execute?”

“I think the 3G site addition…we’ll talk about it next quarter. What we’re doing with 3G is a pretty exhaustive coverage of the footprint of 3G. We’ll do more of 4G as we go into next year.” Apart from this the company also said that the need for increasing the 2G coverage in rural areas is diminishing.

6. The upgrading of users: “Our effort will be to drive penetration of mobile internet, and movement from 2G to 3G, 3G to 4G. ”

7. No circle-wise pricing pressure on 4G: “In India, rolling out 3G and 4G, it is largely going into new geographies. We don’t have to drop pricing in any of these geographies. I think, we have national pricing in most markets. That (pricing) is not a pressure point from a rollout perspective.”

Other important notes:

1. Airtel still wants to bundle apps: “When it comes to overall growth, the challenge in India is going to grow penetration in meaningful way, and this will mean bundling in the right application and content. We are rolling out network, and we’re partnering with providers to bundle OTT applications. If this growth had been 70%, I would have been delighted.”

2. Data realization is dropping because people are using more of their data packs: “As people consume their data allowance, the realization tends to drop. This is especially true for 4G. It is true for 3G, but is especially true for 4G, because people use a lot more data on 4G. There have also been some promotional activities on data to drive consumption. The fundamental issue is really around consumption.”

“There are over 60 million customers on data who consume more than 1 mb. The fact is that if you slice this number into different buckets of consumption; As you keep going up the consumption chain, you would see a big fall-off. That is true for every business. We have 240 million customers, with 60 million on data. Within this 60 million, there is a tiny fraction that accounts for disproportionate consumption. What that tells you is that the opportunity for growth is very very high over the next 5-7 years.”

“The question is what will it take to get that growth? It’s about price of devices, the function of the content they use. There is a company which has an app for truck drivers, who don’t know how to use Facebook and Whatsapp, but they use this app because it improves their life, because it aggregates drivers across the country, and allows for short-haul, instead of long trips….you need a lot of content and applications, genuine problem solving, which create a need for the Internet, which the Indian startup ecosystem is passionately engaged in. That, coupled with devices and rollout: like it has happened elsewhere in the world, there will be substantial growth of data over the next 5-10 years.”

3. 3G = killing two birds with one stone: “As you drive 3G, voice quality imprives. With the proliferation of smartphones, you see a substantial amount of traffic moving to 3G: in a way, it’s killing two birds with one stone. The investment goes to driving an incremental revenue stream, which is data, and at the same time, it creates capacity to unclog the 2G network, especially in a situation where spectrum has been reduced in markets like Delhi. That helps the overall call quality.”

4. Data is growing exponentially:  “Data revenues increased with a double digit quarter on quarter growth. Data consumption increased by 12%.Data consumption is up 12% sequentially, and 69% year on year. Data ARPU (per data customer) is up 29% year on year at Rs 193, and has surpassed voice ARPU at Rs 140. We are at a nascent stage of data revenue pool development. Data now contributes 21.5% of mobile revenue, as against 14.5% in the corresponding quarter last year.”

5. Auctions helped Airtel reduce dependency on 3G ICR agreements: “3G has been rolled out on 2100 MHz, which they picked up in the recent 3G auctions. Their 3G presence is pan india excluding Kerala, which, however, is covered by FD and TD LTE spectrum. This will help Airtel reduce dependency on ICR arrangements, and build a more cost-optimised network.”

6. Does Airtel need 800MHz spectrum? An evasive answer from the company: “The way we look at it, if you look at the last auction, we were able to pick up and strengthen our footprint in 900 MHz, in Karnataka, AP, Punjab; Rajasthan was a renewal, Delhi was a renewal earlier, and Mumbai we picked up some extra 900 MHz, NorthEast, Assam. This enables us to offer 3G on 900 MHz, and that we believe will be very good spectrum for driving propagation of 3G in Rural areas, whenever the need arises, and more importantly, indoors in the cities.